Online Workshop on Regulatory Concerns on Fair Lending Practices and KYC
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Amendments to KYC Directions including non- face-to-face KYC
Anita Baid in conversation with Vinod Kothari
Evince your interest here – https://forms.gle/JLaVk6n1mBHdsw4h9
Live on YouTube – https://www.youtube.com/channel/UCgzB-ZviIMcuA_1uv6jATbg/videos
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Practicing professionals as reporting entities under PMLA
Ministry of Finance notification notifies certain client transactions by CA, CS and CMAs for money laundering law
– Team Finserv | finserv@vinodkothari.com
Brief Background
The Ministry of Finance vide notification dated May 03, 2023 (‘Notification’) has widened the ambit of the term “Reporting Entity” as defined in Section 2(1)(wa), read with sec. 2 (1)(sa) of the Prevention of Money Laundering Act, 2002 (‘PMLA’). The Notification, which has already created a lot of flutter, seems to bring practising corporate professionals (CAs, CSs, CMAs), if the said corporate professionals are carrying certain “financial transactions” on behalf of their clients.
At its first reading, one may either take a very aggressive view, to regard all practising corporate professionals as being “reporting entities”. However, a finer reading suggests that only such professionals, who are carrying specified financial transactions on behalf of their clients, are covered as reporting entities. We discuss this below.
| Our YouTube video on the topic discussing the changes brought in by the said notification and its implications is available here – https://www.youtube.com/watch?v=hWdeFfVcnQM |
Amended KYC norms: A move towards faceless KYC
RBI amends KYC norms to permit faceless KYC; beneficial owner of 10% or more to be subjected to KYC
– Anita Baid, Vice President | anita@vinodkothari.com
Recognising the increasing trend towards faceless lending, and the use of technology for customer due diligence, the RBI has made much-needed changes in the KYC process, permitting lenders to avoid any of physical interface with borrowers and rely on documents stored in Digilocker or other e-documents. Amendments, immediately effective, were made to the Master Direction – Know Your Customer (KYC) Direction, 2016 vide a notification dated April 28, 2023.
| Watch our YouTube video on the topic here – https://www.youtube.com/live/Ewi4FW8G0xk?feature=share |
The amendments in the KYC Directions are applicable to every entity regulated by the RBI, including but not limited to banks, cooperative banks, payment system providers, AIFIs as well as NBFCs intend to achieve the following:
Read more →Simplifying the KYC process and business identifier
Anita Baid, Vice President | finserv@vinodkothari.com
Backdrop
The regulations for conducting customer identification and due diligence by financial sector entities have been laid down by RBI and SEBI, in accordance with the provisions of Prevention of Money Laundering Act and Rules. Under the current regime, the KYC process extends from physical KYC to digital and video-based KYC as well. The physical process of collecting KYC documents and verifying the same involves a lot of paperwork. On the other hand, the Digital KYC Process is a facility that allows lenders to undertake the KYC of customers via an authenticated application, specifically developed for this purpose, hence making it a paperless process. The Digital KYC process, however, also requires physical interaction. Video-based KYC is both paperless and without any physical intervention.
Read more →Aadhaar based KYC- Acceptance and verification procedures
Team Financial Services | finserv@vinodkothari.com
NBFCs licensed for KYC authentication: Guide to the new RBI privilege for Aadhaar e-KYC Authentication
-Kanakprabha Jethani (kanak@vinodkothari.com)
Background
On September 13, 2021, the RBI issued a notification[1] (‘RBI Notification’) permitting all NBFCs, Payment System Providers and Payment System Participants to carry out authentication of client’s Aadhaar number using e-KYC facility provided by the Unique Identification Authority of India (UIDAI), subject, of course, to license being granted by MoF. The process involves an application to the RBI, onward submission after screening of the application by the RBI, then a further screening by UIDAI, and final grant of authentication by the MoF,
We discuss below the underlying requirements of the PMLA, Aadhaar Act and regulations thereunder (defined below) and other important preconditions for this new-found authorisation for NBFCs. Read more →
Presentation on Basics of KYC
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Rationalisation of KYC- Measures for relief or technical advancement?
-Kanakprabha Jethani and Anita Baid (finserv@vinodkothari.com)
Background
Considering the resurgence of the Covid-19 pandemic on the economy, the RBI Governor, on May 5, 2021, announced several measures with a view to infuse liquidity in the economy, avoid another wave of borrower defaults[1] as well as aid in ease of business during the lockdown.
Out of the several measures announced by the Governor, one was to simplify the KYC process, which is the initial step of any lending transaction. Some of the amendments seem to provide immediate relief from compliance requirements and some are intended to encourage carrying out KYC compliances electronically, given the social distancing norms.
In this regard, the RBI has issued the following notifications:
- Periodic Updation of KYC – Restrictions on Account Operations for Non-compliance dated May 5, 2021[2]
- Amendment to the Master Direction (MD) on KYC dated May 10, 2021[3]
In this article we intend to discuss the prima facie implications of the amendments introduced by the aforesaid notifications. Read more →
CKYCR becomes fully operational: The long-awaited format for legal entities’ information finally introduced
-Kanakprabha Jethani (kanak@vinodkothari.com)
Background
The Central KYC Registry (CKYCR) is a registry that serves as a central record for KYC information of all the customers of financial institutions. In India, the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) has been authorised to carry out the functions of CKYCR. It was operationalised in 2016 beginning with collecting information on ‘individual’ accounts. Until now, the CKYCR did not have a feature to collect KYC information of legal entities.
The CERSAI has, in consultation with the RBI, prepared a template for submission of KYC information of legal entities (the same is yet to be published by CERSAI). The RBI has, through a notification dated December 18, 2020[1] (‘Notification’) directed financial institutions to begin submitting KYC information of legal entities w.e.f April1, 2021 (‘Notified Date’). The Master Direction – Know Your Customer (KYC) Direction, 2016 (‘KYC Directions’) have been updated in line with the said notification.
In this note we have discussed the implications for NBFCs, having customer interface, specifically.
Actionables for financial entities
In compliance with the existing KYC provisions on CKYCR and the Notification, NBFCs shall be required to take the following steps:
For customer who are legal entities, other than individuals and FPIs
- Ensure uploading KYC data of legal entities whose loan account has been opened after the Notified Date; within 10 days of commencement of an account-based relationship with the customer. It is to be noted that the existing time limit for uploading the documents of individual accounts was 3 days.
- Ensure uploading KYC records of legal entities on CKYCR, whose accounts are opened before the Notified Date, while undertaking periodic updation[2] or otherwise on receipt of updated KYC information from the customers. (When KYC information is uploaded during periodic updation or otherwise, it must be ensured that the same is in accordance with the CDD process as prevailing at such time.) Such uploading may not be required for loan accounts that are closed before undertaking the first periodic updation after the Notified Date.
- Communicate the KYC identifier generated after uploading of KYC information to the customer.
For individuals
- Ensure that the existing KYC records of individual customers pertaining to loan accounts opened prior to April 01, 2017, should be incrementally uploaded on CKYCR at the time of periodic updation or earlier when the updated KYC information is obtained/received from the customers. (When KYC information is uploaded during periodic updation or otherwise, it must be ensured that the same is in accordance with the CDD process as prevailing at such time.) Such uploading may not be required for loan accounts that are closed before undertaking the first periodic updation after the Notified Date.
- Ensure uploading KYC data of individual loan account opened after the Notified Date; within 10 days of commencement of an account-based relationship with the customer.
- Communicate the KYC identifier generated after uploading of KYC information to the customer.
Clarification with respect to identity verification through CKYCR
There has been a confusion regarding validity of identity verification done by fetching KYC details from the CKYCR. While the provisions of the Prevention of Money Laundering Act, 2002 (PMLA) and rules thereunder as well as the operating guidelines clearly state that if the customer submits KYC identifier for identity and address verification, no other documents need to be obtained.
The KYC Directions have remained silent on the same for long. The Notification also clarified that-
“Where a customer, for the purpose of establishing an account based relationship, submits a KYC Identifier to a RE, with an explicit consent to download records from CKYCR, then such RE shall retrieve the KYC records online from CKYCR using the KYC Identifier and the customer shall not be required to submit the same KYC records or information or any other additional identification documents or details, unless –
- there is a change in the information of the customer as existing in the records of CKYCR;
- the current address of the customer is required to be verified;
- the RE considers it necessary in order to verify the identity or address of the customer, or to perform enhanced due diligence or to build an appropriate risk profile of the client.”
Hence, for the purpose of verification, what is necessary is the KYC Identifier and an explicit consent from the customer to download his/her KYC information from the CKYCR.
Conclusion
The template for uploading KYC information of legal entities on the CKYCR portal has been formulated and shall be live on CERSAI Platform shortly. Financial institutions shall be required to ensure uploading of KYC information of legal entities w.e.f. the Notified Date. Further, additional obligations have been placed on financial institutions in terms of uploading KYC documents for existing customers and intimation of KYC identifier to all customers. Clarification regarding the validity of KYC verification using data from CKYCR is a welcome move.
[1] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12008&Mode=0
[2] As per para 38 of the KYC Directions- Periodic updation shall be carried out at least once in every two years for high risk customers, once in every eight years for medium risk customers and once in every ten years for low risk customers as per the prescribed procedure.